Facebook may lure teen users back with virtual reality promise

After admitting last year that it was losing traction with teenage users, Facebook may have spent $2 billion to lure some of them back.

Late on Tuesday, Facebook said it had reached a deal to acquire Oculus VR Inc., a company that makes virtual reality gaming glasses.

The headset, called the Oculus Rift, is designed to give gamers a 100-degree, 3D field of view. Oculus hasn't shipped a consumer-ready product, but it has released a developer kit for the glasses.

That means Facebook has paid a huge bundle of money for a company that hasn't shipped a product. The company also made its first inroad into hardware, which can be a tricky road to navigate for a social networking company.

Why would Facebook do all of this for a company that is working on gaming glasses?

"Facebook believes that they can use Oculus to reach a different demographic, a teenage gamer demographic," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "Facebook realizes that user engagement is the key to monetizing social media. The highest user engagement could come through virtual reality via the Oculus VR."

The problem is that gamers who would be enticed by an immersive gaming environment, as opposed to something more casual and 2D like Facebook's popular Farmville, is just a segment of the lucrative 18- to 35-year-old demographic.

However, it's segment that Facebook is looking at closely.

In November, David Ebersman, Facebook's chief financial officer, said during the company's quarterly earnings call that the social network is struggling to keep teenagers' attention.

"We did see a decrease in [teenage] daily users [during the quarter], especially younger teens," said Ebersman, who went on to call the network's teen user base "stable."

With 1.2 billion monthly active users and 874 million mobile monthly active users, Facebook has been doing better with older users, who may be the uncles, aunts and grandparents of what would be their preferred teen base.

As far back as 2009, a study released by iStrategyLabs showed that U.S. high school and college-age users were on the decline at Facebook even as its popularity among the 55-and-older crowd was booming . In fact, the number of older Facebook users showed staggering growth in the first half of 2009 -- up 513.7%.

This isn't a new problem for Facebook, but it appears to be getting worse, which stings on multiple levels. The social network was originally launched for college students but now it's lost enough cool factor that teens and college-age students are less engaged, ditching Facebook for social alternatives, like Twitter and Snapchat.

Losing younger users also is a problem for Facebook because once users starts with a social network, making connections with family, friends and colleagues, they tend to stick with it. If Facebook isn't pulling in teenagers, it's losing out on decades of what could be a solid user base.

So how do you get those teenagers to want to use a social network where they're going to get comments and golfing photos posted to their newsfeed from their parents and grandparents?

You have to give them something to counteract that loss of cool factor.

Virtual reality games may just be that cool.

That appears to be one factor that Mark Zuckerberg, Facebook's co-founder and CEO is pushing for.

"Mobile is the platform of today, and now we're also getting ready for the platforms of tomorrow," said Mark Zuckerberg, Facebook's co-founder and CEO, during a Tuesday night conference call about the Oculus acquisition. "Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate."

Ezra Gottheil, an analyst with Technology Business Reserch, said if virtual reality technology hits and grabs peoples' attention, Facebook may be ahead of the game.

"The whole point of virtual reality is total immersion," Gottheil said. "If you are involved with something that floods all your senses, you are more likely to keep coming back than if it's just a stream of text and pictures in one of many windows on your screen. I think the goal is to go beyond Farmville."

He added that even if only a minority of Facebook's users get hooked on virtual reality games, it could be a huge boost to a social network trying to keep more eyeballs on its site for more hours.

It will be a bigger win for Facebook if those new users are teenagers or 20-somethings.

"Oculus has been going after game developers, and we know that their target audience is the young male who plays hard-core games," said Brian Blau, an analyst with Gartner. "That demographic is actually in the 18- to 35-year-old range, but I would consider some teens in that category too.

Blau noted that Facebook executives must be looking way out into the future with this strategy since virtual reality has failed, so far, to catch on.

"Virtual reality has great promise, but building great immersive experiences is really difficult," he said. "People have been saying there's great possibilities for virtual reality for decades and yet we still don't have those products that translate that excitement into real products and technology."

Copyright 2017 IDG Communications. ABN 14 001 592 650. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission of IDG Communications is prohibited.